Global Fund Managers Less Bullish Towards Equities

PRESS RELEASE

17 June 2011
For immediate release

Global Fund Managers Less Bullish Towards Equities, Says HSBC Survey

***Over a tenth of fund managers turn positive towards bonds and cash in 2Q11*** ***Over half of fund managers bullish towards emerging markets equities in 2Q11*** ***New funds under management rose by US$134 billion in 1Q11***

Over four in 10 global fund managers (44%) polled in HSBC’s latest Fund Managers’ Survey continue to hold an overweight view towards equities in the second quarter of 2011 while another 44 per cent shifted their views to neutral. All fund managers were overweight towards equities in the first quarter of 2011.

On the other hand, 13 per cent of respondents turned bullish towards bonds and towards cash in 2Q11 when no fund manager held overweight views towards these two asset classes last quarter.

2Q 2011 asset allocation strategy Underweight Neutral Overweight Equities 11% (0%) 44% (0%) 44% (100%) Bonds 38% (43%) 50% (57%) 13% (0%) Cash 38% (71%) 50% (29%) 13% (0%) Note: Figures in brackets indicate results from 1Q11.

Glen Tonks, Head of Wealth, at HSBC New Zealand says: “While fund managers plan to diversify exposure into bonds and cash, 44 per cent remain bullish towards equities. HSBC remains cautiously optimistic on risky assets. Supporting our central scenario, valuations in major equity markets remain attractive relative to government bonds, and corporate earnings remain strong. In the US, for example, of the 470 companies in the S&P 500 Index that have now reported first quarter results, 73% have beaten earnings expectations. Liquidity also remains a positive factor for equity markets, as central bank rates remain low in developed markets. We have seen NZ investors this year increasing exposure to structural growth emerging markets, with the "BRIC" markets and Asia ex Japan receiving good inflows. I note over half of fund managers were bullish towards emerging markets equities (56%) in 2Q11".

Bruno Lee, HSBC’s Regional Head of Wealth Management Asia-Pacific, said: “44 per cent of fund managers remain bullish towards equities, reflecting the potential of this asset class to continue to offer relatively attractive valuations and strong liquidity. In recent months, inflation, a persistent dark cloud over fast growing economies and an emerging concern in developed markets such as Europe, has fueled short-term volatility in the equities market, affecting investor sentiment.”

Over half of fund managers were bullish towards Japanese equities (56%) and emerging markets equities (56%) in 2Q11, compared to 38 per cent and 75 per cent, respectively, in 1Q11. Over half of respondents are either neutral (44%) or underweight (11%) towards North American equities in 2Q11 compared to 100 per cent being overweight in the previous quarter.

The majority of respondents hold a neutral view towards Greater China equities (75% vs 43% in 1Q11), Asian bonds (71% vs 0%) and Global Emerging Markets/High Yield bonds (75% vs 33%) in 2Q11.

Mr Lee said: “Emerging markets equities are expected to continue to offer potential growth because corporate earnings are expected to rise and valuations will remain attractive in the next five years with sustained overall economic growth. While inflation is weighing down confidence in asset classes invested in Asia-Pacific, investors are poised to capture opportunities from the rebuilding in Japan. In the short term, tightening measures in China and concerns over potential growth slowdown will cause market volatility but investors can diversify investments into the consumer, IT and machinery sectors, which are less likely to be impacted by recent government policies.”

HSBC’s quarterly Fund Managers’ Survey analysed 13 of the world’s leading fund management houses1 on the basis of funds under management (FUM), asset allocation views and global money flows. The net money flow2 estimates are derived from movements in FUM versus index movements in the equivalent class. At the end of 1Q11, polled fund managers reported aggregated FUM of US$4.35 trillion representing approximately 17.1 per cent of the estimated total global FUM3.

1Q11 global asset flows

Funds under management (FUM) rose by US$134 billion at the end of 1Q11, up 3.18 per cent from 4Q10 as all funds, except money market funds, recorded an increase in FUM. Money market funds dropped by US$3.9 billion. Bond funds comprised over a third (37%) of total FUM growth for 1Q11, rising by US$49.5 billion, while equity funds were up by US$41.5 billion, representing 31 per cent of FUM growth in 1Q11.

Net fund flows (as a percentage of FUM), which are derived by subtracting market growth from FUM growth across various asset classes during 1Q11, were:

Asset class End 1Q11 End 4Q10 Japan equities +1.0% -7.7% North America equities +0.4% -3.6% Greater China equities -2.7% +9.6% Europe including UK equities -3.0% -0.9% Emerging markets equities -3.9% +5.9% Global equities -4.7% -4.7% Asia-Pacific ex Japan equities -4.8% -0.3% Global bonds +5.2% +11.6% High yield/Emerging market bonds +4.4% +7.2% Europe including UK bonds +1.4% -0.8% US bonds +0.1% -0.9%

The first quarter of 2011 was marked by continued inflows into bond funds albeit slower than in previous quarter, especially into global and high yield/emerging markets bonds as investors looked for yield in a low interest environment.

Equity funds posted outflows as investors turned cautious on the back of concerns about the sustainability of the global recovery and inflation risk.

Mr Lee said: “Volatility continues to define today’s investment landscape. As market conditions change swiftly, investors need to stay alert to both risk and opportunities by reviewing their portfolios regularly to rebalance their asset holdings according to their individual investment goals and risk appetite.”

1Q11 HSBC Fund Flow Tracker

The HSBC Fund Flow Tracker, which represents the net value of money flows since 3Q06 showed that while FUM in equity funds have increased in recent quarters as markets recovered after the crisis, equity funds continued to register net outflows over the last two quarters. At the end of 1Q11, equity funds posted net outflows of US$153.6 billion compared to net outflows of US$115.1 billion in the previous quarter. The increase was largely due to outflows from European ex UK equities and emerging markets equities as uncertainty in Europe and inflationary concerns in emerging markets dampened investor confidence.

• Net inflows to Greater China equities declined 6 per cent to US$8.8 billion in 1Q11 (vs US$9.4 billion in 4Q10) • Net inflows to Emerging Markets equities declined 14 per cent to US$29.6 billion in 1Q11 (vs US$34.3 billion in 4Q10) • Net inflows to Asia-Pacific ex-Japan equities fell slightly to US$9.5 billion from US$13.7 billion last quarter • North American equities registered outflows of US$12.8 billion compared to US$14.5 billion in the previous quarter

In a continued low interest rate environment, bond funds continued to see net inflows of US$328.6 billion in 2Q11, up 12 per cent over 1Q11.

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